Half Yearly Report
July 06 2010 - 4:45AM
UK Regulatory
TIDMCPE
RNS Number : 8818O
Charter European Trust plc
06 July 2010
For Immediate Release
6th July 2010
CHARTER EUROPEAN TRUST plc
HALF-YEARLY FINANCIAL REPORT
For the six months ended 31st May 2010
Interim Management Report
Chairman's Statement
Net Asset Value
The net asset value per Ordinary Share at 31st May 2010 was 239.0p, a fall of
2.5% for the six months since 30th November 2009 compared with a fall of 8.2% on
the Company's benchmark, the FTSE World Europe (ex UK) Index (GBP).
Interim Dividend
The Board recommends an unchanged interim dividend of 1.40p per Ordinary Share
(2009: 1.40p per Ordinary Share), payable on 26th August 2010 to shareholders on
the Register at 30th July 2010.
Change of Portfolio Manager
The Company announced on 1st July 2010 that Neil Dwane would be the Company's
portfolio manager from that date. Neil is currently RCM's Chief Investment
Officer for Europe, having joined in 2001 from JP Morgan Investment Management.
He has previously managed investment trusts at Flemings and RCM, as well as
currently managing several focused European accounts.
Neil leads the European fund management team at RCM, which has contributed to
the Company's excellent performance in recent years, and has been the deputy
portfolio manager for Charter European Trust since 2004.
The Board welcomes Neil as our portfolio manager where he will continue to
manage the portfolio in its current high conviction way.
Mark Lovett, the Company's former portfolio manager, has accepted a role with
another fund management company. The Board would like to thank Mark for his
contribution to the Company's strong performance in recent years.
The Company's investment approach, which uses fundamental research to build a
focused portfolio of attractive European shares, remains unchanged. The Company
will continue to concentrate primarily on the growth prospects of individual
shares rather than country weightings or benchmarks.
Outlook
Concerns around sovereign debt and the sustainability of the Euro currency
union will continue to weigh on sentiment towards Europe as an economic region.
We do not anticipate the break-up of the Euro but the economic consequences for
individual countries from action taken to stay in the union could be
substantial. An extended period of very subdued economic growth, even
contraction, could be in order for certain countries even as the broader
European region and the rest of the world experience more robust growth.
This negative sentiment should not obscure the fact that many European stocks
are very attractively valued, and are beneficiaries of a weaker Euro. An out of
favour asset class such as Europe throws up hugely attractive valuation
opportunities at the individual stock level. The Trust has a focus on world
leading companies listed in continental Europe with exposure to the global,
rather than purely European, economies and this is where we are finding the
strongest valuation support. Ultimately, it is those individual stock names that
give us confidence in the portfolio delivering positive absolute and relative
returns in the long term.
Share Buy Backs and Treasury Share Transactions
During the period under review the Company purchased 238,000 Ordinary Shares for
cancellation and a further 385,000 Ordinary Shares into treasury at an average
discount of 9.2%. In the period from 31st May 2010 to 1st July 2010, a further
110,000 Ordinary Shares have been purchased for cancellation.
Principal Risks and Uncertainties
The principal risks facing the Company were outlined in the Directors' Report on
pages 17 and 18 of the Annual Financial Report of the Company for the year ended
30th November 2009. These risks fall broadly under the following categories:
Investment and Strategy, Market, Accounting, Legal and Regulatory, Corporate
Governance and Shareholder Relations, Operational and Financial. In the
opinion of the Board these principal risks have not changed.
Material Events and Transactions
In the six month period ended 31st May 2010 the following material events and
transactions have taken place.
At the Annual General Meeting of the Company held on 17th March 2010, all the
resolutions put to shareholders were passed.
The final dividend of 2.65p per share was paid on 1st April 2010 to shareholders
on the register on 26th February 2010. The total dividend payment for the year
ended 30th November 2009 was 4.05p per share.
There were no related party transactions in the period.
Responsibility Statement
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within the half-yearly
financial report has been prepared in accordance with the Accounting Standards
Board's Statement 'Half-Yearly Financial Reports'; and
· the interim management report includes a fair review of the information
required by Disclosure and Transparency Rule 4.2.7R, of important events that
have occurred during the first six months of the financial year, and their
impact on the condensed set of financial statements, and a description of the
principal risks and uncertainties for the remaining six months of the financial
year; and
· the interim management report includes a fair review of the information
concerning related parties transactions as required by Disclosure and
Transparency Rule 4.2.8R.
The half-yearly financial report was approved by the Board on 5th July 2010 and
the above responsibility statement was signed on its behalf by the Chairman.
C G H Weaver
Chairman
155 Bishopsgate
London EC2M 3AD
5th July 2010
Manager's Review
Volatility in stock markets remained high as investors continued to assess the
sustainability of global economic growth. In Europe uncertainty was compounded
by sovereign debt concerns, particularly in certain more peripheral economies
such as Greece, Portugal and Ireland, leading to concerns about the future of
the Euro. Despite such concerns, it was encouraging to see European stock
markets deliver steady local currency returns although these were diluted for
sterling investors by the weakness of the Euro.
The financial year started with investors in reflective mood after the strong
stock market returns in 2009. Share prices in the period after March 2009 have
risen markedly as investors responded positively to the robustness of corporate
financial performance despite the severe economic downturn. This reflected the
prompt political response and management actions taken to control costs and
investors were relieved to witness continental European companies acting as
aggressively as their Anglo-Saxon peers. The result of these actions was that
many of the key ratios used by investors to assess companies' underlying health
such as free cash flow yield, profit margins and return on capital held up much
better than expected during the downturn providing a solid valuation base for
equities. The tone of markets so far in 2010 has been influenced by investors'
concern about the possibility of a double dip and worries of disruption in
currency markets.
Political events in Europe added to the uncertainty and volatility. The most
powerful factor has been the slowly unfolding financial crisis in Greece and its
influence on other peripheral economies in Europe. Continued negative revisions
to key economic statistics in Greece severely undermined the market's confidence
in the financial management of that economy, particularly against the backdrop
of high government indebtedness and the need to re-finance existing credit
lines. As market concerns about Greece grew and spread to other countries, there
was an unsettling echo of the events that surrounded the Lehman financial
crisis, with liquidity in credit markets drying up and rumours of a major
financial default and concerns about the stability of the Eurozone. After some
delay, the European Central Bank eventually put in place a substantial EUR750bn
credit line for EMU countries and initiated liquidity programmes to ensure
efficient functioning of debt markets. While not completely eliminating the
concerns, this credible and market focused response substantially improved the
situation and put in context the issues that had arisen. The ECB/IMF package has
given troubled economies some breathing space to undertake the necessary
financial reforms to reduce indebtedness to more sustainable levels; while we
expect this to occur, markets will continue to worry about the economic, social
and political implications of such long term austerity measures.
For the Trust's portfolio, relative performance was again strong in the period
under review with a substantial level of outperformance against the benchmark in
the half year. It is encouraging that we have been able to maintain the strong
relative performance in the very divergent market conditions in recent years,
and in our view this underlines the benefit of a flexible and focused fund
management approach, which concentrates primarily on the outlook for individual
companies rather than economic regions. Returns for sterling investors were
adversely affected because of Euro weakness over the period.
At the individual stock level, a broad spread of stocks contributed to
outperformance. One powerful contributor was Barco NV, the Belgium listed
provider of imaging products and solutions, which was a new purchase at the tail
end of 2009. Barco is a company that we have monitored for some time but had
been uncomfortable with management strategy and the high valuation. A profit
warning and senior management change in 2009, in addition to substantial share
price underperformance, provided the catalyst to purchase a position. The new
CEO has a tangible plan to clean up the business and focus resources on the fast
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